Estimating Share Value Using the DCF Model Following are forecasts of sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of February 26, 2011, for Best Buy, Inc. Assume Reported Horizon Period (In millions) Sales 2011 NOPAT NOA 2012 2013 2014 2015 $40,023 $44,577 $49,650 $55,300 $61,592 1,448 1,628 1,777 2,009 2,226 Terminal Period $62,208 5,287 5,891 6,545 7,282 8,101 2,265 8,214 Answer the following requirements assuming a discount rate (WACC) of 11%, a terminal period growth rate of 1%, common shares outstanding of 410.5 million, net nonoperating obligations (NNO) of $787 million and noncontrolling interest (NCI) on the balance sheet of $690 million. (a) Estimate the value of a share of Best Buy's common stock using the discounted cash flow (DCF) model as of February 26, 2011. Rounding instructions: Round your answers to the nearest whole number except for the discount factors, shares outstanding, and the stock price per share. Round the discount factors to five decimal places, shares outstanding to one decimal place, and the stock price to two decimal places. Use your rounded answers for subsequent calculations. Do not use negative signs with any of your answers below. (in millions) Increase in NOA FCFF (NOPAT - Increase in NOA) Discount factor [1/(1+rw}] Present value of horizon FCFF Assume Reported 2011 (round 5 decimal places) Cum present value of horizon FCFF $ Present value of terminal FCFF Total firm value NNO NCI Horizon Period 2012 2013 2014 2015 Terminal Period Firm equity value $ Shares outstanding (millions) Stock price per share $ (round one decimal place) (round two decimal places) (b) Assume Best Buy (BBY) stock closed at $43.47 on April 1, 2011. How does your valuation estimate compare with this closing price? What do you believe are some reasons for the difference? Ostock prices are a function of many factors. It is impossible to speculate on the reasons for the difference. COur stock price estimate is lower than the BBY market price, indicating that we believe that BBY stock is undervalued. Stock prices are a function of expected NOPAT and NOA, as well as the WACC discount rate. Our lower stock price estimate might be due to more optimistic forecasts or a lower discount rate compared to other investors' and analysts' model assumptions. COur stock price estimate is lower than the BBY market price, indicating that we believe that BBY stock is overvalued. Stock prices are a function of expected NOPAT and NOA, as well as the WACC discount rate. Our lower stock price estimate might be due to more optimistic forecasts or a lower discount rate compared to other investors' and analysts' model assumptions. Our stock price estimate is lower than the BBY market price, indicating that we believe that BBY stock is overvalued. Stock prices are a function of expected NOPAT and NOA, as well as the WACC discount rate. Our lower stock price estimate might be due to more pessimistic forecasts or a higher discount rate compared to other investors' and analysts' model assumptions.